Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 20X4, when Seed Company had the following stockholders' equity: Any excess of cost over book value on the common stock purchase was attributed to goodwill. Page does not hold any of Seed's preferred stock. Seed had net income of $40,000 during 20X4 and paid no dividends.
The preferred stock is two years in arrears on January 1, 20X4. The controlling interest's share of Seed's 20X4 net income is ____.
A)$24,000
B)$23,360
C)$25,600
D)$32,000

Question

Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 20X4, when Seed Company had the following stockholders' equity:  Any excess of cost over book value on the common stock purchase was attributed to goodwill. Page does not hold any of Seed's preferred stock. Seed had net income of $40,000 during 20X4 and paid no dividends.
The preferred stock is two years in arrears on January 1, 20X4. The controlling interest's share of Seed's 20X4 net income is ____.
A)$24,000 
B)$23,360 
C)$25,600 
D)$32,000

Quizplus · Accepted Answer

11eb11de_92f6_9ecc_ad38_5d5a59b68ecb_TB2014_00 Note that only one year of dividends is included here as preferred dividends in arrears at the date of the acquisition would have gone on the D&D schedule to calculate goodwill.

Page Company Purchased an 80% Interest in the Common Stock